VENDOR MANAGED INVENTORY IN RETAIL INDUSTRY

PRESENTED BY:VIKAS.N

USN:1DS09IM0588TH SEMESTER

INDUSTRIAL ENGG. MANAGEMENTDSCE, BANGALORE

CONTENTS

IntroductionDefinition Conventional Fulfillment Process from Retailer

PerspectiveVMI Fulfillment Process from Retailer PerspectiveActivities Involved in Establishing VMI ProcessEDI Documents used in VMIBenefits of VMI ProcessChallenges and Limitations of VMIOvercoming the LimitationsCase StudyConclusion

INTRODUCTIONVendor Managed Inventory popularly known as

VMI is gaining great momentum in retail business processes.

In this era of tough competition retailers are implementing every supply chain optimization process that will reduce their costs, reduce inventory levels and increase profits.

Efficient supply chain management requires the rapid and accurate transfer of information throughout a supply system. Vendor Managed Inventory (VMI) is designed to facilitate that transfer and to provide major cost saving benefits to both suppliers and retailers customers.

DEFINITIONVendor managed inventory process can be

defined as “A mechanism where the supplier creates the purchase orders based on the demand information exchanged by the retailer/customer”.

In simple terms, VMI is a backward replenishment model where the supplier does the demand creation and demand fulfillment.

In this model, instead of the customer managing his inventory and deciding how much to fulfill and when, the supplier does.

CONVENTIONAL FULFILLMENT PROCESS FROM RETAILER PERSPECTIVE

In the conventional fulfillment process, sales are typically forecasted in their replenishment systems using the historical sales data. Then, the retailer/customer tracks the sales information and inventory information (usually on-hand and available quantities) and forecasts the orders.

The corporate buyers keep watch on the ordered data and perform order pushes for the items they are responsible for.

The created purchase orders will be communicated to the vendor using the EDI 850 document. The vendor looks at the available inventory and determines whether or not the order can be fulfilled.

CONVENTIONAL FULFILLMENT PROCESS FROM RETAILER PERSPECTIVE

If the inventory is available at the vendor, the product will be shipped to the retailer’s warehouse or store and an “Advance Shipment Notice” (EDI 856 document, ASN) will be communicated to the retailer.

Soon after this, the vendor sends the invoice to the retailer using the EDI 810 document. Upon receiving the product, the retailer does the invoice matching and handles payment through their account payable systems.

FLOW OF THE CONVENTIONAL FULFILLMENT PROCESS

VMI FULFILLMENT PROCESS FROM RETAILER PERSPECTIVE

In the fulfillment process using VMI, typically the activities of forecasting and creating the purchase orders are performed by the vendor/supplier and not by the retailer.

Electronic data interchange (EDI) is an integral part of VMI process and takes a vital role in the process of data communication.

The retailer sends the sales and inventory data to the vendor via EDI or other B2B Collaboration facilities and the supplier creates the purchase orders based on the established inventory levels and fill rates.

VMI FULFILLMENT PROCESS FROM RETAILER PERSPECTIVE

In VMI process, the retailer is free of forecasting and creating the orders as the vendor generates the orders.

The vendor is responsible for creating and maintaining the stock plan for the retailer. The vendor sends the shipment notices before shipping the product to the retailer’s store/warehouse.

Soon after this, the vendor sends the invoice to the retailer. Upon receiving the product, the retailer does the invoice matching and handles payment through their account payable systems.

FLOW OF FULFILLMENT PROCESS USING VMI

ACTIVITIES INVOLVED IN ESTABLISHING VMI PROCESS

Management Commitment Data Synchronization and EDI Set UpSetting up the AgreementsData ExchangeInvoice MatchingMeasurement

EDI DOCUMENTS USED IN VMIEDI is an integral part of VMI process.

Some of the EDI transactions used in VMI are listed below:850 Purchase Orders852 Product Activity855 Purchase Order Acknowledgement856 Advance Ship Notice810 Invoice

BENEFITS OF VMI PROCESSThe VMI process brings benefits for both

retailers and suppliers. Some of those benefits are listed below.

Retailer Benefits:Reduced inventoryReduced stock-outsReduced forecasting and purchasing

activitiesIncrease in sales

BENEFITS OF VMI PROCESS

Supplier Benefits: Improved visibility results in better forecasting Reduces PO errors and potential returns Improvement in SLA Encourages supply chain cooperation

CHALLENGES AND LIMITATIONS OF VMISome companies continue to manufacture to

stock without leveraging customer specific data effectively for production planning.

In order to provide priority service to VMI partners, some vendors reserve inventory resulting in shortages to other customers.

Insufficient level of system integration results in incomplete visibility.

High expectations from retailers.Resistance from sales forces due to concerns

of losing control. Lack of trust from employees.

OVERCOMING THE LIMITATIONSEffective implementation of VMI depends on

smoothly overcoming the limitations and addressing the concerns of various stake holders.Build strong partnerships with management

commitment to effective communication, active sharing of information, commitments to problem solving and continued support.

Conduct simulations and pilots before actual implementation.

Organize training sessions before launching VMI program.

Set reasonable targets for benefits of VMI.Establish agreements on service levels and process

to handle exceptions.

CASE STUDYRobert Bosch North America’s (RBNA)

automotive division is a leading Tier 1 supplier providing finished goods material to most OEM’s in North America, Europe, and Asia.

They implemented supplyon VMI and in the year 2003 in Charleston plant to reduce inventory level .

SupplyOn VMI has allowed Charleston to reduce daily inventory levels by 30 percent, premium freight by over 70 percent, and also improved the delivery performance of suppliers.

CONCLUSION

Supply chain optimization requires efficient and accurate transfer of information with in all the members of the chain. VMI facilitates that transfer of information and provides cost saving opportunities to both vendors and retailers.

REFERENCES

www.vendormanagedinventory.comwww.tcs.com/.../Vendor%20Managed%20

Inventory%20in%20Retail%20www.datalliance.com/vendor-managed-

inventory.htmlhttp://scholar.google.co.in/http://www.supplyon.com/vendor-managed-in

ventoy_at_bosch.html